Chapter 6

Consumer Purchasing Strategies and Wise Buying of Motor Vehicles

Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Wise Buying of Motor Vehicles and Other Purchases

1. Identify strategies for effective consumer buying

2. Implement a process for making consumer purchases

3. Describe steps to take to resolve consumer problems

4. Evaluate legal alternatives available to consumers

Chapter Objectives

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Objective 1 Identify Strategies for Effective

Consumer Buying

• Daily buying decisions involve trade-offs

• Wide variety of economic, social and personal factors affect daily buying habits

• Long term stability is achieved by not spending your entire current income

• Overspending leads to misuse of credit

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Practical Purchasing Strategies

• Timing purchases– Price variations with the time of the year

• Store selection– Location, price, selection, services

• Brand Comparison – Private-label or store brands vs. national

brands

• Label Information– Open dating

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Practical Purchasing Strategies

• Price comparison– Unit pricing = standard of measurement– Coupons & rebates– More store convenience higher prices– Ready-to-use products higher prices– Large is not always the best buy – “Sale” prices not always a savings– Online sources can save time

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Wise Buying

Techniques

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Practical Purchasing StrategiesWarranties

• Written guarantee from manufacturer or distributor specifying the conditions under which the product can be returned, replaced or repaired.

• Express warranty (usually written)– Full Warranty or Limited Warranty

• Implied warranty– Warranty of title – Warranty of merchantability

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Warranties

• Used Car Warranties– FTC required “buyers’ guide sticker”– Warranty of merchantability

• New Car Warranties– Basic parts against defects– Power train coverage– Corrosion warranty

• Service Contracts– Extended warranty

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Research-Based Buying Major Purchase Decision-making

Process

• Phase 1: Pre-shopping Activities– Problem identification– Information gathering

• Phase 2: Evaluating Alternatives– Attribute assessment & comparison– Price analysis– Comparison shopping

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• Phase 3: Selection and Purchase– Negotiation– Payment alternatives– Acquisition and installation

• Phase 4: Post-purchase Activities– Maintenance and operation– After-sale service alternatives– Resolution of purchase concerns

Research-Based Buying Major Purchase Decision-making

Process

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Objective 2 Implement a Process for Making

Consumer Purchases

A Research-based Approach to Buying a Motor Vehicle

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Buying a Motor VehiclePhase 1 – Pre-shopping Activities

• Problem Identification– Focus purchasing activities

• Information Gathering– Personal contacts– Business organizations– Media information– Independent testing organizations– Government agencies– Online sources

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• Purchase alternatives

• Selecting vehicle options

• Comparing used vehicles

• Leasing a motor vehicle

Buying a Motor VehiclePhase 2 - Evaluating Alternatives

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• Now or later?

• Cash or credit?

• Which brands?

• Which stores?

• Rent vs. Buy?

Buying a Motor Vehicle Purchase Alternatives

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Price Analysis– Prices can vary for all types of products– Assess differences in quality relative to price– Price and quality are not always closely related

Comparison Shopping can be beneficial when:– Buying expensive or complex items– Buying items that you purchase often– Easily done with ads, catalogs, or online– Different sellers offer different prices and services– Product quality or prices vary greatly

Price Analysis & Comparison Shopping

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Performance Options– Mechanical devices

– Engine size, transmission, power steering, cruise control, and antilock brakes

Comfort and Convenience Options– Power seats, air conditioning– Stereo systems, power locks

Aesthetic Features– Metallic paint– Special Trim– Leather interior– Sunroof

Buying a Motor Vehicle Selecting Vehicle Options

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Common sources of used cars include:– New-car dealers– Used-car dealers– Private sales– Auctions and dealers sell previously

owned cars– Used-car superstores such as CarMax– http://www.dealernet.com

Buying a Motor Vehicle Comparing Used Vehicles

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Advantages– Small cash outflow– Lower monthly payments than buying– Lease provides detailed records - helps if you use

your car for business purposes– Able to obtain a more expensive car more often

Disadvantages– No ownership interest– Must meet requirements– May have additional costs for extra mileage,

turning the car in early, or for certain repairs

Buying a Motor Vehicle Leasing a Motor Vehicle

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• Capitalized cost = price of the vehicle – Average buyer pays 92% of list– Average leaser pays 96% of list

• Money factor = interest rate• Payment schedule

– Monthly payment amount– number of payments

• Residual value = expected value of the vehicle at the end of the lease – Return, keep, or sell the vehicle. – If the residual value < market value, return it

Buying a Motor Vehicle Financial Aspects of Leasing

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Buying a Motor Vehicle Phase 3 - Determining Purchase

Price

Negotiation may lower price or add features– Have all the necessary information– Deal with a person who has the authority to give

you a lower price or additional features

Used-Car Price Negotiation– Edmund’s Used Car Prices - http://www.edmunds.com

– Kelly Blue Book - http://www.kbb.com

The more new cars sold the more used cars there are for sale, keeping the prices down

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Buying a Motor Vehicle Price Bargaining for New Cars

• Sticker price = suggested retail price

– Includes base price + accessories

• Invoice price = dealers cost– Consumer Reports: http://www.consumerreports.org

– Edmund’s New Car Prices: http://www.edmunds.com

• Until price of the new car is settled:

– Don’t mention any trade-in

– Don’t mention dealer financing

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Buying a Motor Vehicle Price Bargaining for New Cars

• Price bargaining - compare dealers– Set-price dealers– Car buying services = auto broker

• $50 - $200 over dealer’s cost

• Sales agreement = specific details• Consumer protection for new-car buyers

– Warranties – State lemon laws

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Sales Techniques to Avoid• Lowballing – low price quote increases with last

minute add-ons

• Highballing – high trade-in offer + high new car price

• “How much can you afford per month?”

• Never leave a deposit unless ready to buy

• “Your price is only $100 above our cost.”

• Sales agreements with preprinted amounts

Buying a Motor Vehicle Price Bargaining for New Cars

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Buying a Motor Vehicle Comparing Financial

Alternatives• Financing sources

– Banks, credit unions, other financial institutions, finance companies, or dealer financing

– Get preapproved for a certain amount• Low payment or low rate ≠ best

– Upside down equity = car is worth less than amount still owed on the loan (negative equity)

• Check the APR and any rebates

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Buying a Motor Vehicle Phase 4: Post-purchase

Activities• Maintenance and ownership costs are

associated with some purchases

• Correct use yields improved performance and fewer repairs

• Investigate, evaluate and negotiate a variety of servicing options

• Complain if not satisfied with a purchase

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Buying a Motor Vehicle Phase 4: Post-purchase Activities

Automobile Operating CostsFixed Costs

– Depreciation– Interest on loan– Insurance– License, registration and taxes

Variable Costs– Gas and oil– Tires– Maintenance and repairs– Parking and tolls

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Buying a Motor Vehicle Phase 4 - Post-purchase

ActivitiesAutomobile Operating Costs

• Keep good expense records• Follow the maintenance schedule in the

manual

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Buying a Motor Vehicle Phase 4 - Post-purchase

ActivitiesVehicle Servicing Options

– Car dealers– Service stations– Independent Auto Repair Shops– Mass Merchandise Retailers like Sears

and Wal-Mart– Specialty shops such as oil/lube, muffler,

transmission, and tire shops

Be alert for signs of fraud

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Objective 3 Describe Steps to Take to Resolve

Consumer Complaints

Resolving Consumer Complaints

Step 1: Return to place of purchase

• Calm, rational, persistent approach

Step 2: Contact company headquarters

• “Contact Us” on firm’s website

• Use e-mail or letter

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Resolving Consumer Complaints

Step 3: Obtain consumer agency assistance – BBB provides pre-purchase information

– File a complaint on line at http://www.bbb.org

– Mediation - third party negotiates (nonbinding)

– Arbitration - decision is binding

– State consumer protection office or agency

Step 4: Take legal action

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Objective 4Evaluate Legal Alternatives

Available to Consumers

Legal Options for Consumers– Small claims court– Class action suits– Using a lawyer– Other legal alternatives

• Legal aid society• Prepaid legal services

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